Are You Wealthy? Here’s a Test

To many people, wealthy means having an abundance of material possessions. Wealthy people are those that own big houses, luxury cars, yachts, expensive watches, etc. But is that really wealthy? For me, I would consider myself wealthy when income from my assets can cover all my family living expenses and a few luxuries. There is no magic number. But when both my wife and I can choose to live without working, that’s when we are wealthy. However, we do have a short-term goal of having $1 million of assets excluding home equity by 2017.

I did a quick calculation yesterday in my beat up 98 Ford Contour, and our net worth should be about $345,000 according to the formula. Right now, we have about $730,000 including home equity. This mean we are a pair of PAW! However, this calculation only works well if your income has been steady. For that reason, it’s probably better if you substitute “Your pre-tax income” with your average pre-tax income from the past 5 years.

About the Author

Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (9 Comments)

Thanks for this post! The problem with all these external measures is just that … they are external. If that’s what you want, Networth IQ has a free tool that helps you measure your own Net Worth and then compare it to others.

But, the real definition of wealth is how much YOU need to live off (indexed with inflation) for the ‘life of your dreams’ … your real dreams (for most people that doesn’t require a Ferrari and a Lear Jet).

Multiply that by 40 (to be 99% sure your money will last as long as you do) … if you have that, congratulations, you are RICH. Simple and accurate … for you.

While I like that definition of RICH, it has the same problem as any other calculation. That is, who the hell knows what the life of my dreams will cost 30 years from now? Take it a step further, what I consider the life of my dreams at 40 may not be the life I want to live at 60.

You actually stumbled on one of two flaws with the formula. If you look in detail at the surveys done in the book, they are mostly middle-aged people. The formula really breaks down with younger people coming out of college (High Salary, no savings, home, student loans, etc) and with older/retired people with low net incomes (the problem you found).

It’s really more of a rule of thumb. A more accurate way to really gauge your net worth is to look at median and average net worths of people in your age bracket.

Of course the problem with comparing to your peers is that in general, most people’s net worth is not where it should be, so the median numbers are really lower than I feel they should be, while the PAW formulas are probably higher than is truly realistic for most people.

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